Intelligence

Preparing for bumpy descent

January 7, 2019

Preparing for bumpy descent: Only in the last 18 months does it appear we’ve moved past the 2008 economic crisis, judging by both the markets and the way we talk about them. But for investors who’ve been flying high, it’s time to prepare for a bumpy descent. With nearly all signs pointing towards a recession in 2019, the Fed is pulling from its back pocket of experiences in order to engineer an economic “soft landing.”

In short, the central bank must manage a moderation in growth that keeps inflation contains while avoiding a recession. However, the partial government shut-down poses some additional turbulence for the organization. Because much of the economic data the Fed uses–like a report on durable goods orders–is delayed, compounded by the U.S.’s relationship with China, a soft landing becomes even more even difficult to construct.

So, what’s a bank to do?

“For now, the Fed has signaled it is listening to the markets—though not ready to act on investors’ worries,” according to the Wall Street Journal. “Mr. Powell said Friday the Fed would be patient and see how the economy evolves, laying the groundwork to take a break from raising rates.”

Fed up with fees: Industry heavy-hitters like Morgan Stanley, Fidelity Investments and Citadel Securities LLC have joined forces to create their own new low-cost stock exchange and challenge the NYSE and Nasdaq Inc. Members Exchange, or MEMX, comes after years of frustration among brokers and traders about fees charged by the U.S. Stock Exchanges, writes the Wall Street Journal. SEC approval is needed in order for the exchange to move forward, which is expected to take at least 12 months, pushing its launch into 2020. We’ll be keeping a close eye on its progress in the interim.

A zone of opportunity–but for whom?: If you’ve never heard “opportunity zones,” you’re probably not alone. Buried deep in the 2017 tax overhaul is an incentive for investors to develop real estate in areas legally deemed “high poverty” or “low income” by U.S. Census tracts. Now, banks, insurance companies, private equity firms, and others are rushing to take advantage, according to Bloomberg Businesweek.

The idea that investing in real estate will help poorer communities prosper isn’t taken as fact. Instead, critics have questioned whether the tax breaks will really serve their purpose, or instead, further help communities that are already on the upswing. Case in point: Long Island City, home to Amazon’s newest headquarters.

Upward mobility’s uphill battle: New data from the Economic Policy Institute showed that over the last year, “CEO pay grew by over 17 percent last year, while regular worker salaries grew .3% (or, adjusted for inflation, not at all),” writes Fast Company. Basically, unless you’re already rich, the chances of getting rich are slim. In order to change that, the publication is pushing seven ideas to create a more economically sound society, including universal based income which our Chief Economist recently explored on the blog.

Burnt out:After countless stories about lazy, spoiled and entitled Millennials comes a different take on the generation’s work ethic (albeit from *literally* the most Millennial news outlet ever: Buzzfeed). Still, the piece takes a deep-dive into why the generation can go so far as to over-perform at work, but can’t manage to drag their butt to the post office on a Saturday morning. The answer in the piece is simple: burn-out. The reason for it is more complex.

“We’re not feckless teens anymore; we’re grown-ass adults, and the challenges we face aren’t fleeting, but systemic,” writes Anne Helen Petersen. She goes on to explain the systematic flaws as those created and reinforced by the idea that “millennials needed to optimize ourselves to be the very best workers possible.”

Story stocks’ cautionary tale: Last week, the once-untouchable Apple’s stocks dropped 10 percent and took a chunk of the market with it. It’s a perfect, however sad, example of a business whose value reflects favorable press coverage, rather than their assets or income–also known as a story stock. Our Senior Account Manager Lauren Pozmanter explores the good, the bad and the ugly on our blog.